When two highways intersect out in the country, with but an occasional passage of slow-moving vehicles and with a clear view all about, things care for themselves naturally, so far as the public safety is concerned. But when the volume of this traffic increases; when high-powered cars and heavy trucks are propelled at speed by careless or drunken drivers; when a fleet of little irresponsible and often overcrowded craft out for a holiday dots the stream; when great structures, pushed forward to the utmost building line, obscure the vision—then, as the appalling record of deaths and casualties betokens, the time has come for public supervision at the crossways. Necessity may arise for the posting of officers or of automatic signal towers at junction points. Even before resorting to these extreme measures, however, the simple remedy of visibility suggests itself. Electric flood lights by night and the removal of all obstructions that hamper outlook are immediately in order.
This homely figure is quite applicable to the present condition of our corporate affairs in the United States. The sudden advent of widespread popular ownership of corporations since the World War has created entirely new circumstances and conditions in the business world. Main Street and Wall Street have come to cross one another at right angles—Main Street, our synonym for this phenomenon of widespread ownership, and Wall Street, as applied to the well-known aggregation of financial and of directorial power in our great capital centres. This intersection of interest, so often at cross-purposes, is marked by an imminent danger of collision at the junction point of ownership and management. The volume of business, the high speed of propulsion, the growing obstructions which stand in the way of visibility, suggest that in this domain also a prime necessity is the letting in of light to the fullest degree. American business affairs, in so far as they have assumed the corporate form, under this recent aspect of public ownership, are still too largely carried on in twilight. Great progress has already been made; but it is high time that the imperative need of putting things upon a universally sounder footing be generally understood.
How many plain, ordinary American citizens have suffered something like the following experience, paraphrased from a forceful description by a denizen of Wall Street himself?
A stockholder in the X. Y. Z. Corporation receives a blanket proxy for the next annual meeting of the concern for the purpose of transacting such business as may lawfully come up for consideration. There is a request to sign on the dotted line, giving the president of the company, by proxy, the right to vote. There is a natural desire, before granting this general license, which includes, by the way, approval and validation of all of the acts of officers and directors for the preceding year, to know a little more about the company's affairs. There is worriment, perhaps, about an investment made sometime previously, at $30 per share, on the basis of newspaper reports that the company would show earnings of at least $6 per share for the year. Consultation with a broker elicits a favorable opinion of the company and its management. With such excellent promise, still merely surmise and rumor, the chance of increase of income as well as of principal appears good. After a few months the official report is issued. The company has earned but $3 a share, instead of $6. The quotation drops to $4. Yet the president, in his published statement to stockholders, refers to the company's progress, praises the loyalty of the employees, and holds out high hopes for continued prosperity. The quotation advances, perhaps, to $33 a share, a little above the purchase price. There is a rumor in the press that dividends are to be increased. The president promptly denies this report. Thereupon the stock drops, hangs dormant for months, and betrays a strong disposition to sag still further. Along comes a reduction of the dividend because of the unpromising business outlook; and still no authoritative statement of earnings. It is all very disheartening—the uncertainty perhaps worse than the truth.
Dismayed at this reduction of income, the stockholder writes a letter of inquiry to the company, prompted by the loss of one third in both principal and income. The letter elicits this reply: —
The financial statement will not be ready before the annual meeting of the stockholders in March, at which time all stockholders will receive a copy. In justice to the other stockholders I cannot give you any advance information about the operations or financial condition of this company. Nor can I advise you on what policy to pursue for your investment. It is unfortunate that you have suffered a loss. I have always looked with disfavor upon having the stock of this company become a vehicle for speculation in the market. I can assure you that the company is in a good financial position. I trust that you will sign and mail your proxy at an early date. Very truly yours,
This veritable document emanated from a company in existence for many years and with an international reputation. It was not a fly-by-night concern. As my correspondent writes, 'No white-collar bandit had sold the stock.' Here was a real 'partner' in the concern, seeking in vain, either from reputable bankers or from the corporation itself, information. Something is evidently wrong about the whole business. What usually happens, of course, is that the investor sells out, takes his loss, and strives to forget about it, investing the proceeds in another enterprise. Will he fare better therein? And what about the second stockholder who relieved him of his former holdings? And what about the general reaction upon the little stockholder's mind? As one put it, 'I have not been a believer in antitrust legislation, but I am changing my mind.'
On my table is a great pile of recent official corporate pamphlets. The premier concern on the list is the Royal Baking Powder Company, which fails to register in this collection at all, in as much as it has never issued a balance sheet or financial statement of any kind whatsoever for more than a quarter of a century. Publicity it has surely courted—as witness the printed record of the old United States Industrial Commission of 1900. But this particular kind of publicity, despite a considerable distribution of the stock, which is fairly active both in the unlisted market and on the New York Curb, seems to have been overlooked. Akin to it is the Singer Manufacturing Company, which handles 80 per cent of the world's output of sewing machines. Neither hide nor hair of financial data is discoverable in the usual sources of information. The dance-card, balance-sheet, or picture-book variety of corporation report follows hard upon these. For concerns like the National
Biscuit Company such newfangled gewgaws as income accounts or depreciation simply do not exist. American Can gives you depreciation for 1925, but never a whiff concerning its accrual through past years. Diminutive, dainty, tied up with fancy string, perhaps, these reports are tenderly reminiscent of the parties of our youth. Some may have elaborately decorated covers, like paper on the wall—particularly among public utilities with extensive customer ownership. Some, like the Gillette Safety Razor Company (counting almost 7000 shareholders in 1925, are inviting pictorially, however uninformative they may be. Emblazoned with gilt or colored reproductions of one thing or another, on large sheets of heavy glossed paper, again tied together with a fancy string, they are pleasing to the eye. Yet colored pictures of factories, brightly lighted at night, — as some of these must well have been in view of their extraordinary success, — tell no tales. What an extravagance of good paper and ink, about as nutritious as some of the advertising displays of ham and eggs or other standard articles of daily consumption in the popular magazines!
Then there is the leaflet type, done on a single folded sheet of paper. This 'tuppence ha'penny' variety, once common, is happily by way of passing out. Cotton mills are still in this stage, again with nothing but a balance sheet, and no income statement at all. Sonic of the new investment trusts, which ought particularly to disclose full information about their holdings, are also like this. The great American Tobacco Company has not progressed beyond the embryonic state. Or there is the pompous but empty type, suggestive of President Wilson's pithy distinction between men who grow and those who merely swell with the advance of years. Such reports remind one of those little men who not infrequently puff themselves up in manner to make up a bit for their abbreviated build. Other reports may well be designated the 'business condition' type, devoting much attention to things in general and but little to their own affairs in particular. The Standard Oil companies are doing better of late, to be sure, in recognition of their quasi-public status (the New Jersey company alone in 1923 had 81,000 shareholders); but the balance sheet and the income account are still quite in accord with the prevailing style in women's dress. And then there are the reports like Tristram Shandy, all obfuscated and darkened over with fuliginous matter.' To the uninitiated, as we shall soon see in detail, they may tell too much that is not so, or too little of what they ought to tell. Of them the Wall Street Journal has this to say:
Many do more to deaden than to arouse the stockholders' interest. 'Whether by accident or design, such reports are drawn so as to withhold from the stockholder what he most desires to know. When he is told that 'the increase in mortgages and ground rents payable represents a mortgage given in connection with purchase of additional property,' he says to himself that an intelligent bootblack could have guessed as much. When he reads that 'the decrease in miscellaneous accounts payable is due to withdrawals by affiliated companies to reduce their indebtedness for construction and other purposes,' he refrains from calling the report a mess of tripe only for fear of insulting an industrious and self-respecting farmyard animal.
This brings one to the truly informative type of official report, which fortunately is coming more and more to be recognized as not only good form but the best of business as well. The United States Steel Corporation, now owned by 179,000 people, has from the outset achieved high merit in this regard. From the first annual statement, outspread over entire newspaper pages in 1903, down to the present time, its record has been consistently admirable. The General Motors Company, first in its industrial class the world over, is a worthy second. It has 56,000 shareholders. And in the field of public utilities the Philadelphia Company and the Standard Gas and Electric offer prominent examples of reports as simple and understandable as their complicated structure permits. Another model statement suitable for smaller concerns combining full publicity, made as intelligible as possible, with pictorial evidence of the development of the business, is that of the Dennison Manufacturing Company, with its 800-odd shareholders. These and other entirely adequate statements, full-figured, compact, and businesslike, used to be the exception, but it is greatly to be hoped that in the early future they may become the rule. How to bring this to pass is a matter of the utmost importance.
Stockholders are entitled to adequate information, and the state and the general public have a right to the same privilege. First of all, we must remember that incorporation is a privilege. The people grant to a private body the ineffable enjoyment of immortality, of succession, of impersonality, and, greatest boon of all, of limited liability. Under partnerships or other purely private forms of organization, where trading is carried on without limitation upon the personal liability of those who engage therein, certain obvious safeguards for creditors and the public arise from the purely personal attributes of the concern. The grant, by public act, of limitation upon this personal liability for debts or other obligations abrogates many of these formerly existent safeguards, which must of course be offset by new provisions at law. But in any event the release from these personal obligations affords so great an advantage, and is accompanied by such novel risks, as to make it clear that it is indeed a privilege, conferred out of hand by gift of the people. In other countries where these valuable grants proceed from an inside source—to wit, the central government, — this privilege is more likely to be taken at its face value. But in the United States such public gifts are scattered with a lavish hand by forty-eight different little sovereignties, more or less jealous of one another, both financially and prestigiously. Whence it comes about that the selection for purposes of incorporation of one or another from among this ardent band of states has become a matter of corporate largess, when it should rather be one of respectful petition. In other words, the normal relation of suitor and besought has become reversed. Confusion both of ideas and of policy at this point has hampered the whole business of incorporation in the United States.
The contention for corporate publicity has derived expert support recently as an adjunct to industrial efficiency. Scientific comparison of results as to costs of production, sales, or what not, has become almost a slogan in American business. The right of trade associations to pursue such statistical policies has been twice reviewed by the Supreme Court of the United States of late; and this august tribunal within the year has set the seal of approval upon such practices, acceding to the argument that comparison of results of past performance is bound to contribute to a general stabilization of market conditions. The recent report of the National Industrial Conference Board upon trade associations is a concrete manifestation of this aroused interest in the matter. One hears less frequently of those slurs which used to be cast, from within, upon movements of this sort: 'prying or prurient curiosity,' not to be gratified—and which ought not to be, to quote a prominent attorney.
Not so technical, but of wider scope, is the bearing of complete corporate disclosure upon the so-called trust question. It is now a quarter century since the United States Industrial Commission put forward this remedy, first among a number of proposals for dealing with industrial combinations. Little attention was paid at the time to the argument that such revelation of profits by concerns which threaten to oppress the public would operate almost automatically, like a lowering of tariff barriers, to invite corrective competition. The secretive tactics of the National Biscuit Company, later to be commented upon, are quite commonly ascribed to a desire to entrench itself beyond all possible competition as a low-cost producer before divulging the profitableness of its business to possible rivals. Decision as to the right of public authority to such information, as we shall soon see, is expected shortly from the Supreme Court of the United States in respect to both steel and coal-mining enterprises. President Coolidge's remedy of a fact-finding Federal agency for anthracite coal mining finds its main warrant as a safeguard against extortionate price practices. I hold it to be self-evident that such publicity would render unnecessary much of the further-reaching antitrust legislation which at one time or another it has been proposed to put upon the statute books.
The advocacy of real informative publicity as a corrective for certain of our present corporate ills must needs be placed in its proper relation to the whole matter of democratization of control. A prime argument which raises its head at the outset of all discussion of shareholders' participation in direction is that the shareholder—the owner, in other words—is hopelessly indifferent to the whole business. His inertia as respects the exercise of voting power, and almost everything else, is an acknowledged fact. But no one expects it to be otherwise. One may never anticipate that a great enterprise will be operated by town meeting. It never has been done successfully; nor will it ever be. The ordinary run of folks is too busy, even were it competent enough. Nor is it true that the primary purpose of publicity, the sharing of full information with owners, is to enable these shareholders to obtrude themselves obsequiously upon their own managements. But such information, if rendered, will at all events serve as fair warning in case of impending danger. And this danger will be revealed, not because each shareholder, male or female, old or young, will even bother to remove the wrapping from the annual report in the post, but because specialists, analysts, bankers, and others will promptly disseminate the information, translating it into terms that will be intelligible to all.
This, of course, will take time. The annual meeting will long have been passed; but—and this is the nub of the whole business—an opportunity for a reflection of this revealed condition will have been afforded in the meantime, leading inevitably to the quotation of a just and true price based upon such conditions. Our great exchanges—and no little investor should ever own securities for which there is not such a great open public market at all times can perform their proper function of making true prices, consonant with valuation, only when there is such disclosure. This, then, is the ultimate defense of publicity. It is not as an adjunct to democratization through exercise of voting power, but as a contribution to the making of a true market price. This is a point but half appreciated at its real worth. Consider the plight of the uninformed shareholder, compelled for some reason or another to let go of his investment during the sealed-up period. Is this not the ultimate basis of the right of every partner in an enterprise to such disclosure as shall assure him against an artificial or even a rigged price? Rigged market prices, based upon inside information, are perhaps one of the most vicious features of the present situation. Relief from this menace may be had only through insistence upon complete revelation in contradistinction to that which has been so aptly described by Hastings Lyon, speaking of the prevalent practice among public utilities, as 'limitless obfuscation.'
The two essentials of an adequate statement are the balance sheet and the income account. The former discloses the condition of the company statically—as at a given moment, It is an instantaneous photograph, giving a cross section, so to speak. The income account, per contra, reveals, dynamically, the course of affairs in perspective—viewed lengthwise throughout a period of time. Each is essential to a complete understanding. As well, otherwise, attempt to figure the area of a floor with one dimension lacking; or to write a person's life from a packet of daguerreotypes. Everything becomes guesswork unless both are given. 'Handsome is that handsome does' is an old, familiar proverb, expressive of popular wisdom. It is as applicable to corporations as to people. The balance sheet reveals what the corporation is; it gives but an inkling of what the corporation has been doing. There is just the difference involved between being strong and 'going strong.'
Of the two, the income account is perhaps more significant, both immediately and prophetically. Yet of the two it is the income statement, as perhaps too informative, that is the more apt to be suppressed. In England, despite the strictness of the Companies Acts, and still even in the staid Commonwealth of Massachusetts, all that is required by law is the filing of an annual balance sheet—lest possibly the income account might give aid and comfort, or the reverse, to competitors. But in general the world has long since passed the time when corporations may deny to their shareholders an income account as well as a balance sheet. It is certainly out of line with good business practice that the Amoskeag Manufacturing Company, the greatest cotton mill in the world, should render an income account not in dollars but in yards, along with a petty trial balance; or that the Waltham Watch Company, owned by more than 3000 people, two years after reorganization, after having appealed to the public for subscription to its securities, should still vouchsafe nothing but a skeleton balance sheet. Neither does the former instance obscure unprofitable operation nor does the latter, as it appears, cover up the full measure of current profits. Both meagre reports are incompatible with the best modern standards of business practice.
At the threshold of intelligent corporate publicity stands a clear distinction between capital and income the assurance that the property in being wed is not being used up. For, unless it be certain that the investment has been at all costs kept whole, there can be no security that it is not being in part redistributed under the guise of profits. It is fundamental, in other words, that so-called profits should all of them have been really earned, instead of having been partially abstracted from the capital fund. The necessity at law for observation of this principle has never been more forcibly stated than in the heinous case of the American Malting Company, in 1904. The court required that the directors return to the corporate treasury, for the benefit of stockholders, $500,000 in cash and $1,000,000 in common stock, equal to dividends which had been declared although actually unearned. This was the reason: 'The ordinary purchaser of corporate stock holds it as an investment. He rightly considers and treats the dividends paid upon it as income. In many instances the income is required to meet the expenses of living, and is entirely expended for that purpose. To say that a person who has been unwittingly induced to exhaust his principal by the mistaken or fraudulent representation of those to whom he has entrusted it that what has been paid to him is income suffers no injury is absurd. To refuse him redress, except upon condition that he return the moneys which he has expended, in the belief that his capital was intact, — notwithstanding that by such expenditure he is rendered penniless, — is to put a premium upon fraud in corporate management.' This dictum at law utters a sound and necessary practical truth concerning property management. The first point in analysis to be sure about, then, is that the stated earnings are truly earnings and nothing else.
The finer distinctions as respects keeping the investment intact are well put in the admirable report of the Philadelphia Company for 1925, each item being discriminatingly treated therein. 'Maintenance represents the cost of keeping the property in an efficient operating condition.' 'Depreciation is the provision made for retiring, renewing, or replacing property through deterioration, obsolescence, and depletion.' The relative importance of each of these will vary with the business. Maintenance, with a heavy plant investment, will be relatively high in some; depletion is a first consideration in oil or mining ventures; obsolescence may loom large in a rapidly developing pioneer industry, as in the public-utility field to-day. But, taken collectively, they must all be treated, not, as too commonly occurs, as condiments, but as true vitamins. They all, in the field of accounting, conform to the little girl's definition of salt—'something which spoils everything that you don't put it on.' As well figure your personal expenses without keeping the teeth and health in sound condition. Statements devoid of adequate charge-offs for these purposes, in accordance with the varying local conditions, are utterly meaningless. Sound business practice should even make allowance for them before deduction of interest charges, as a disclosure of the true picture. Even the bondholder, viewing his claim to interest as a primary deduction from earnings, will be deceived if he fails to realize that the full long-time security for his lien rests rather upon the preservation intact of the corporate estate than upon the immediate likelihood of having current interest charges met. For, unless he first charges off, mentally, from earnings an amount equal to this depreciation, he will underestimate the possibility of a failure of his income in the years to come, as well as the disappearance of his principal at maturity. Such being the case for the creditor, how much more important is it for the shareholder, the real owner, to be advised at the very outset as to the preservation of his capital fund intact.
Obsolescence, due to the fact that the world moves, is the most subtle and, possibly, the most undermining factor of all. When the New England Cotton Yarn Company started out in 1902 with a great investment in machinery operated by skilled English mule spinners, its proponents little dreamed that the great influx of foreign-born unskilled operatives would create the necessity of substituting ring-frame spinning machines throughout their mills. Bankruptcy ensued, partly through the failure to foresee this contingency. But more sudden or incalculable are the changes which come about in popular habits and customs. The American Ice Company has had to weather one such shift, in the practical supercession of its large investment in natural-ice warehouses, up the Hudson and all along the New England coast, through the development of artificial-ice plants close to the points of consumption. And now, for the second time, electrical refrigeration, even in the domestic ice box, promises to bring about another complete revolution in the business. Think how bicycles have come and gone, and of what happened to the American Bicycle Company! The horse-drawn vehicle has virtually disappeared before the automobile. As a prominent manufacturer recently complained, describing the depression in his own line of business, 'the bottom has dropped out of baby carriages'—not because of a declining birth rate, but because of the activities of Henry Ford. Not only must the wear-out and tear-out of plant be cared for in every line of business, but the veritable transformation of the underlying economic conditions themselves must be taken into account. To meet all such circumstances must, of course, be a matter of judgment and of degree; but to live in and for the day, rather than in the light of the long-time future, when the interest of thousands depends upon the decision, becomes almost a crime.
Enigmatic accounting, obscuring the distinction between capital and income, was never better exemplified than in the case of the American Woolen Company, now in the doldrums or worse because of the sins of its former management. This concern, with upward of $100,000,000 of capital stock and loans, with 35,000 shareholders, and an army of employees scattered all over New England, would seemingly be affected with a public interest merely by reason of its magnitude. Yet Cole, in his American Wool Manufacture, a serious and competent study, is practically unable to make out whether 'the preferred dividends were not on the average earned in the whole prewar period,' covering some fifteen-odd years. He makes it appear, in fact, 'that the surplus built up in 1912 to $12,000,000 was at least in part the result of inadequate provision for this item [depreciation].' To such a policy of accounting and management the euphemistic title, 'pleasant-day' finance, is applied. Is it any wonder that bad weather has now succeeded, as the wheel of time revolves? The flippant attitude, or worse, of men high placed in responsibility, treating this matter as if it were nobody's business but their own, is illustrated by a bit from the cross-examination of Havemeyer, head of the old sugar refining company, in 1900.
Q. Are you now carrying on business at a loss?
A. I have answered that before; I have no other answer to give to it.
Q. You refused to answer it before.
A. Well, I refuse to answer it now.
Q. How do you carry on business at a loss and still declare dividends?
A. You can carry on business at a loss and lose money, and you can meet and declare dividends. One is an executive act and the other is a business matter.
By no means, however, are corporate reports respecting property upkeep always on the wrong side of the ledger. As commonly, perhaps, in case of prosperous companies, is the true situation concealed, whether for the benefit of insiders or not, by understatement of allowances both for maintenance and for replacement. American Can and National Biscuit, whether dominated by the same group in management or not, are alike notorious for obfuscation in this regard. In the former case, American Can, after a nondescript depreciation policy in 1912, suddenly increased its allowance of this sort fivefold, from $500,000. This held the publicly stated net earnings to an unchanging level, despite ever increasing profits. Then by suddenly dropping depreciation charges back to $1,000,000 the next year, the published net earnings were of course jumped twice over. Coincidently, in 1913, $14,000,000 of debenture bonds were issued to pay off a 33 per cent accumulation of preferred dividends. Could anybody on the inside, with foreknowledge of the course of events, possibly have profited from a concomitant rise in the common-stock quotations from $11 per share to upward of $50?
The National Biscuit Company, with 15,657 shareholders in 1925, the largest manufacturer of its kind in the world, has likewise roughly handled its accounts, always on behalf of those 'in the know.' Net earnings after the war, as reported, long failed to reflect the full measure of profits, through resort to all sorts of fancy charge-oils to depreciation. History does not relate whether this concealment of profits was to discourage industrial competition for the time being or was, as rumored, on account of the heavy war taxes on corporate income. Anyhow, all of a sudden came an abrupt abandonment of this ultraconservative depreciation policy in 1922. The number of shares was multiplied sevenfold, accompanied by an increase four times over in the amount of dividends paid. This fulguration through the long overdue disclosure of earnings was at once reflected in bounding quotations for the stock.
The Allied Chemical and Dye Corporation is the leading manufacturer of coal-tar derivatives and chemical products in this country, and probably in the world. This concern is equally notorious for overloading its operating expenses with such deductions. The aggregate now exceeds $100,000,000 for depreciation, obsolescence, and contingencies, although the abbreviated income account for 1925 gives not the slightest indication of the charge-off for that period. And on top of this is a 'Capital Surplus,' and this in turn is capped by a 'Further Surplus,' the two aggregating over $150,000,000. Are its shareholders to have the same experience as in National Biscuit? Not even the most expert analyst can discover from its attenuated income statement what is the basis of its various revaluation, retirement, and depreciation reserves. How ridiculous that public partners in this enterprise, consulting banking experts, should have to be advised that such an official income account 'does not by any means give a clear picture of the annual earning power,' or that 'the balance sheet by no means discloses the true value of the company's fixed assets.' It approaches public scandal that corporations of such importance should thus play fast and loose, not only with the public, but with those whose capital is really invested in the business.
And now for the income accounts! The niggardly National Biscuit Company, in its three-by-four-inch balance sheet, stingy even of prepositions, gives us this: 'Earnings year 1925.' Such a policy, 'mysterious or macabre,' invites the comment that the record is either too good or too poor to be frank about it either way. Once again, maintenance and depreciation items would alone tell the story. The widest diversity in this regard, from nondisclosure to entire candor, obtains. 'File General Oil Advertising Company bulks expenses and depreciation indistinguishably in one figure; as if anyone but a tyro would assign the slightest importance to such a statement without full information concerning upkeep or development. Some concerns, like the Continental Gas and Electric Corporation, report net earnings before depreciation, perhaps even comparing this figure with what was done a year ago; some, like Mack Trucks, report net earnings after depreciation. Whether one or the other is meaningless or not depends upon whether the actual amount of this depreciation is given otherwhere in the report. Mack Trucks so states it, for the current year; but, like many other companies, it fails to indicate what the total accrued from past years now equals. And as for Dodge Brothers, Inc., National Cash Register, and Goodyear Tire and Rubber, all under the same banker management, the word 'depreciation' might just as well not exist, so far as any of their profit and loss statements, since they were taken over, are concerned.
How striking by way of contrast is the 'white-hot lucidity' of the American Locomotive Company for 1925, frankly wiping out all profit and transforming it into a heavy deficit, in order to make full allowance for wear-out and tear-out! Sinclair Oil Corporation earned some $21,212,000 in 1925 and promptly charged off $15,210,000 for depreciation. Even assuming this to have been somewhat arbitrary, what a difference such a policy of disclosure makes by way of inspiring confidence in the good faith of the management.
Adequate specification is therefore imperative for the income account, as affording the most up-to-date indication of efficiency of the management. It is no chronicle of past events, as the balance sheet may be, no recital of bygone success or of past error. Income accounts are downright news. They ought to be pithy, nothing less. A fine example is the frank and open present-day policy of the American Sugar Refining Company, the more refreshing in view of its secretive antics years ago. The report for 1925, with comparative statement year after year since 1911, leaves little to be desired as reflecting its rehabilitation programme. The way in which, since 1916, $38,300,000 has been expended for maintenance, repairs, additions, and improvements is made thoroughly clear. On the other hand, the International Harvester Company makes no statement of the gross volume of its business, giving nothing but the income received before deducting interest on loans, depreciation, and like items. One cannot, therefore, figure what is the operating ratio or the net earning power. Likewise with the United States Rubber Company. This great concern, according to its annual report for 1925, owns 194 square miles of rubber plantation in the Far East, representing an investment of about $25,000,000. Seven million trees, 117 square miles under cultivation, produced 20,000,000 pounds of rubber. Quite an undertaking, is it not? Yet this is all that is vouchsafed to the 26,898 shareholders in 1926: —
Rubber received from the plantations is taken into account by the United States Rubber Company at current market prices, and the plantations companies are credited in open account. The plantations coin-panics draw against this open account for current cash requirements, and the balance not required for operating and development purposes is retained by the United States Rubber Company and is comprised in its general assets. The balance of the open account amounted to $7,338,305.19 as of December 31, 1925, and is shown in the Consolidated General Balance Sheet.
Very good paper and fair type are wasted on publication in its consolidated balance sheet of 'Plants, Properties and Investments, including Rubber Plantations, less reserve for depreciation, $183,861,487.64.' This time, thanks be, the figures are carried out to the last penny, so that we may be assured exactly how things stand. Isn't it about time that such open and shut methods were brought to an end?
Balance sheets are prone to be inadequate or misleading in two principal respects. One is the downright omission of important items in the property account. Another is the failure to disclose the method of the valuation, whether it be of property or of stock in trade. The leaflet report of the Standard Oil Company of New Jersey merely states that its investments in stocks of other corporations amount to so-and-so much. The president of the Baldwin Locomotive Company, at the annual meeting, issues the surprising statement that the actual value of the Philadelphia plant alone is in excess of the total of $30,000,000 at which the entire property and equipment of the concern are carried in the accounts. No obligation seems to have been recognized to explain the matter further, although it is obviously of some slight importance to the owners of the concern. Even the railroads are still a little bit at loose ends in this regard. One wonders sometimes how the property account of the New York Central would look if an adequate and up-to-date valuation of its real-estate holdings in the city of New York were to be recorded. Least satisfactory of all is the revelation of assets by some of the investment trusts—the Super Power Company, for example, or the Electric Bond and Share Securities Corporation. The latter gives merely a list of investments without condescending to give either the number of shares or specification as to whether they are valued at cost or at market value.
This brings us to the second important feature—namely, the failure to make clear the method of inventory. In such first-class procedure as of the General Motors Company it is plainly stated that the valuation is based, as it should be, on cost. The Consolidated Cement Corporation frankly avows its valuation 'at reproduction cost.' But one turns in vain to such otherwise excellent statements as those of the Bethlehem Steel Company, or, in the field of public utilities, the North American Company, for light as to whether the appraisal is based upon prices paid, upon the market value, upon reproduction cost, 'prudent investment,' or what not.
Popular wisdom recites that all signs fail in a dry time. With corporations things work out the other way round. When they are wet, with an abundance of goodwill, commonly called watered stock, and particularly under the present widespread adoption of so-called no-par capital issues, then it is that all signs fail with a vengeance. Almost immemorial custom, until recently, started off the corporation account from a given base, a set par value, which supposedly represented either the price at which the securities were sold or else the value of the property for which they were exchanged. But nowadays, under the prevailing practice that abolishes this par value, permitting the issuance of stock, in most states, at no particular figure whatsoever, — good old-fashioned balance-sheet practice has been knocked galley-west. The accounts, instead of starting from a bench mark solidly established, theoretically at least, start from nowhere, and as certainly fetch up nowhere in particular.
Dodge Brothers, Inc., representing the purchase of a well-known automobile concern in 1925, is a case in point. About $146,000,000 was paid for properties which were said, just as things, to be worth some $8.5,000,000 net. Upward of $90,000,000 of the total realized by the sale of its stocks to some 26,000 people stood for prospective earning power and for nothing else, it was frankly admitted in the prospectus that the capital stock of 2,850,000 shares (no par value) 'has been issued almost entirely against the established earning power, which is not assigned a value in the balance sheet.' Consequently this remarkable prospectus, in face of this statement, — or rather on the other side of the selfsame piece of paper, — represents 'goodwill' in the balance sheet at $1. It really does. Not even the almost impregnable General Electric Company, with its extraordinary policy of depreciation, retirement, and under-evaluation, where everything in the nature of water was drastically expressed from the start, could to outward appearances exceed this performance. Each of the two balance sheets represents goodwill at $1. They look like Siamese twins. Yet Dodge Brothers has a deluge of such water, and the General Electric less than a penny. How was it brought about? By an astounding feat of legerdemain. The old-fashioned way was to accomplish such things by fictitious inflation of the assets on the balance sheet. The modern way is to bring them to pass by puncturing the liabilities. This used to be impossible, because capital stock had a fixed par value at which it went into the books. But capital stock with no par value under the laws of all but two of our states has no definable bottom. And so, among the liabilities under Capital Stock and Surplus, is this amazing item: —
Preference Stock, no par value; $7.00 per annum cumulative; issued 850,000 shares $850,000
Did ever accountants heretofore subscribe to such a contradiction in terms? This preferred stock goes in at $1 per share, while on the same line is the promise of $7 per annum cumulative dividends. As I figure it, this means a cumulative dividend rate of 700 per cent a year. But it is all the more remarkable that this should be allowed to go in at $1 per share when, as a matter of fact, it was sold to the public along with some common stock at $100 per share. And the same sort of prestidigitation is applied to both classes of the common stocks, which are entered at ten cents per share, quite regardless of the price the public paid for them. Further comment upon such an accounting monstrosity—or shall we call it acrobatics?—is superfluous.
Under the old-fashioned theory of capital stock with a definite par value, pranks enough and misfeasance a plenty played around the matter of surplus, also; but with the advent of no-par stock, so often accompanied by practical disappearance of any precisely defined capital fund or estate, the doors were thrown wide open to all sorts of shenanigan here as well.
Surplus, but imperfectly distinguishable from profit and loss, has always been used to make assets and liabilities exactly equilibrate down to the last cent on the balance sheet. But now the entire capital stock, so far as it is stripped of par value, is bulked indistinguishably with the Surplus to constitute such a total as to produce that same perfect equilibrium. Here is the way it reads for the National Cash Register Company for 1925—a fair sample of newfangled accounting: —
Capital Stock and Surplus. $37,856,135.08 (Represented by 1,100,000 shares Coin-ion 'A' Stock and by 400,000 shares of Common 'B' Stock, both of no par value) (Including surplus of Foreign Subsidiary Companies)
And this is one of the seven figures on the balance sheet, constituting itself alone about four fifths of the total liabilities of this great concern. Its predecessor, with a par value, indicated that this sum was about half capital and half surplus, each being handled separately. But from this time forth all distinction is airily waved aside as if it were of no consequence.
The possibilities of obfuscation, to say nothing of malfeasance, as to surplus appear in the selfsame first annual report of 1925 of Dodge Brothers, Inc., purveying results of its first eight months' operation under banker management. This is the way the matter is now described: —
The company's surplus at December 31, 1925, totaled $31,477,234, of which $6,676,722 arose upon acquisition of assets on May 1, 1925, $14,958,543 upon conversion of debentures, and $9,841,969 from earnings.
This is the same balance sheet, by the way, for which the entry of the various no-par securities into the accounts in connection with goodwill has just been described. The balance sheet itself conforms strictly to this statement. But just suppose that in this instance—and it might perfectly well have been so done by anybody else—the mere total had been stated without further specification. What a magnificent achievement to have taken the old personal corporation of April 1, 1925, with its surplus of $4,608,000, and, after adding in the actually undistributed earnings of $9,841,000, to have created within eight months a socalled surplus of $31,477,000. What really happened was that $15,002,000 of debentures, standing at $100 each, had been converted into 434,563 and 17/21 shares of Class A no-par stock, reserved for the purpose; which, as we have seen, went in on the new balance sheet at ten cents each. In other words, the net reduction in the liabilities column due to this pen-and-ink performance was approximately $15,000,000. Taking it out of the capital stock valuation, this sum was simply shifted to the existing surplus, — the footing of assets remaining the same, to create an aggregate about seven times as large as the surplus eight months earlier. Otherwise stated, for every time that a $100 debenture retired, some odd shares at ten cents each stepped into its shoes—reminiscent of the rabbit sausage in the old, old story. That, too, was adulterated 'only fifty-fifty: every time we put in a rabbit, we put in a horse.' Nor is this to charge deception, in view of the frank textual avowal. Yet it stands, nevertheless, as an extreme example of the jugglery which is attendant upon some of these recent departures in American corporate finance.
The holding corporation is a particularly troublesome and confusing business as respects accounting. Even with the best of intentions it is extremely difficult to set forth the true condition of affairs, either as to the estate itself or as to the current income therefrom. The American International Corporation, for example, is largely a finance concern. It has no outstanding bonds; but, its income being derived entirely from investments, these, so far as they are stocks, are based upon dividends which can be paid only after the satisfaction of the fixed charges of each separate company owned. Nothing less than a complete disclosure of all of these investments makes clear the financial status of the concern.
The danger of incomplete disclosure is especially accentuated in the field of public utilities. The Electric Light and Power Corporation in 1925 asserts clearly enough that it has no funded debt; yet its subsidiaries, whence all its income arises, have in fact $140,000,000 of such indebtedness. So also with the American Superpower Corporation, which reports no funded or floating debt. Yet its two principal investments are bonded up to almost $50,000,000. If, with good intent, the true status may thus be obscured, how great is the danger when the morale is low. The bitter experience of United States Rubber shareholders in 1915 is matter of history. The United Dry Goods Company collapse, coincident with the failure of the H. B. Claim Company, was a public scandal. Published reports gave no indication of weakness of the top corporation, which, however, was contingently liable for over $30,000,000 on notes of its subsidiaries. The Corn Products Company in 1903 manipulated matters another way round. A highly discouraging balance sheet was issued, cutting its surplus by over $2,000,000. The holding company, of course, had no income of its own; so that when this particular subsidiary, the Glucose Sugar Refining Company, was caused to postpone its dividend date over into the succeeding fiscal year, this, and other things of the sort, completely transformed the picture. It is clear, therefore, that no annual report is worth the paper upon which it is printed, without complete consolidated statements, both of income and of condition, as of a date certain.
The first recourse by way of remedy for these irregular practices is that of vigorous private initiative from within, industry by industry, taking up the issue of orderly and adequate publicity as a matter both of duty and of expediency. The street railways, for example, have long since adopted a standard form of accounting, although it seems not to be universally put into effect. A uniform classification of accounts for gas companies has been adopted officially for over twenty states. The influence of the trade associations, for the moment confined to efficiency and production data, might well spill over into the field of finance. Much that is helpful might emanate from the Investment Bankers' Association of America. Much has indeed been accomplished. But one runs head-on against a serious obstacle. To a considerable degree within each industry it is a case of all or nothing. The laggard corporation, persistent in secretiveness, lays a heavy penalty upon its progressive rivals all down the line. This does not apply among public utilities, for they are industrial monopolies, more or less. But in the domain of private competitive enterprise it is only the all-powerful factor in the business, conscious of its own worth and importance, — like the Steel Corporation or the General Motors Company, — which can throw reserve to the winds, making a full disclosure of everything. In certain industries, also, the chain stores, for instance, — where profits are derived from a multitude of transactions in different commodities, the embarrassment of disclosure is less important. Profits on all kinds of things are averaged into a general figure, not disclosed for particular products. Competition, in other words, is much generalized. But let rivalry within an industry narrow down to two or three big competitors, and it takes a hardy perennial to stand the wind and weather of publicity alone.
Beyond peradventure of doubt the New York Stock Exchange is to-day the leading influence in the promotion of adequate corporate disclosure the world over. The evident disposition to accept fully the responsibilities of its status as the greatest organized market for securities in the world merits high praise. Its list requirements at present are immeasurably advanced beyond those of even ten years ago. It seeks to discover, first, that securities admitted to the trading list are sufficiently distributed so that there shall be a free and open market. This calls for a statement as to the ownership of the largest blocks of its stock, including the ten largest shareholders. Then a constantly elaborated questionnaire, approximating more nearly year by year to the highest standards of accounting practice, endeavors to place everything of material value upon the file. This file, it should be noted, is open to public inspection; and it is further noteworthy that the detail offered therein frequently greatly exceeds in specification that which is furnished to the shareholders in the published reports. For example, the Standard Oil Company of New Jersey has already been cited as distributing rather an inadequate statement of the leaflet type. But as far back as 1920 the stock list application affords a much more complete description of the business, including such important matters as the equity earnings of subsidiary companies by name. Or for American Can, with its curt official report, there is submission to the Stock List Committee, in 1926, of comparative statements of earnings for the preceding five years, along with a lot of other things.
The International Business Machines Corporation, in its stockholders' leaflet report, jumbles most of its possessions together as follows: —
Plant, Property, Equipment, Machines, Patents and Goodwill, as per books, after deducting surplus of Subsidiary Companies acquired at organization: $28,019,035.45
A contemporary stock list application, however, reveals that land, buildings, equipment, and machines aggregate about $6,000,000, whereas patents and goodwill are listed at $13,700,000. Why should not the shareholders, even more than the Stock Exchange, be entitled to know that two thirds of the listed assets, aside from inventory, represent capitalized earning power only? Whether such financial policy is wise or not depends upon circumstances. The point here is merely that the shareholders are better entitled to know all about it than anybody else. These instances show what a fund of information there is on file at the Stock Exchange, free of access, even by public invitation, for those who have a real interest in the business.
These requirements for admittance to list are steadily improving, as is also the discipline for failure to observe the conditions imposed. It is now more than twenty years since the American Steel Foundries were struck from the list for fraudulent statement of their working capital. Such downright misstatement is easy enough to deal with summarily. Far more difficult is it to impose drastic penalties for imperfect rendition of data, or, it may be, for failure to live up to the requirements, now more and more common, of quarterly as well as annual reports. To strike the security from the list, closing the market to thousands of shareholders perhaps, would work irreparable harm. It would also shut the door to further stimulation in the direction of sound practice, relegating the offender to outer darkness, so to speak. But the present administration is evidently solicitous to do its best. It now, furthermore, enjoys the expert attention and advice of a highly competent staff. New issues and principles are constantly arising. One of particular importance is the prevention of the use of misleading titles. To be listed as a bond, a bond must be a bond. And in these days of holding companies, especially among public utilities, very nice distinctions have to be drawn between securities offered for sale as bonds and others which are practically notes secured by collateral consisting of stock of subsidiary operating concerns, sometimes of rather doubtful character. A participating or preferred stock must possess all the attributes of such securities, judged by the highest technical standards. Even the form of the engraved certificate must pass muster. I have in mind, for example, condemnation of the legend in large letters across the top of one of these certificates, 'Stronger than the Government itself.' The discouragement, too, in 1925, of the issuance of nonvoting shares exercised an extraordinarily tonic effect upon a prevailing fashion.
But there are distinct limitations, nevertheless, upon the, activities of the New York Stock Exchange, this best of the private agencies. Its control is restricted solely to those corporations which seek admittance to that particular exchange. There always remain the unlisted securities handled on the curb or over the counter; as well as on the other provincial exchanges all over the United States, which for many purposes are sufficient for corporations of lesser size and importance, but among which there is the greatest diversity of standards. Unless Chicago Boston, Pittsburgh, and the others rise to the full measure of New York, its to requirements, a wide gap in supervision obtains. And it is, of course, for the lesser local corporations, more closely controlled and less susceptible to educational appeal, that the greatest need of improvement exists. Local jealousies count for something. Certain of the major public utilities with headquarters in Chicago adduce local pride as a sufficient reason for refusing 'to come to New York' for an open market. Such influences, where the desire for modest seclusion as respects accounting exists, are accentuated by other motives. A security not listed—that is to say, dealt with on the curb, over the counter, or in a provincial exchange—remains more completely under control of its own management as respects market price. But if once listed, quite apart from the obligation to file adequate data, there is the chance of having to support the stock in the open market against overt attack. For all these reasons, therefore, it is clear that, however wholesome and uplifting the practices of the New York Stock Exchange may be, its influence must of necessity remain circumscribed within certain rather definite limits.
Why should not the stockholders themselves, if necessary, bring about a reform in this business of publicity? Do they rest inert and mute because of their helplessness? There seem to be only two things which they can do. One is to boycott the sealed-up corporations. The other would be to take the bit in mouth and force the issue in open meeting. As for the boycott, mysterious corporations which have turned out to be bonanzas have always served as decoys for the public. The uninitiated are always ready enough to try a fling. But, even among the more wary, the personality and reputation of managers often afford sufficient guaranty, at all events to take a gambling chance, the more alluring because of the very mystery. The danger arises, however, from the ease with which real responsibility and power, under modern conditions, may often imperceptibly pass from strong and competent hands into others of a quite different sort. This is what is going on with great rapidity all about us at this time. And as for taking the bit in mouth, to register the opinions of thousands of stockholders is at best an expensive, difficult, and often well-nigh impossible performance. A first-class corporation, long notorious for its secretiveness, repeatedly issued statements like this, which appeared in its annual report for 1901: —
The settled plan of the directors has been to withhold all information from the stockholders and others that is not called for by the stockholders in a body. So far no request for information has been made in the manner prescribed by the directors [our italics].
Distribution of stock has not meant distribution of control. Surprising, was it not, that, with the characteristic inertia of stockholders at large, they never assembled and formally preferred this request? Was it, however, quite fair to assume that failure so to do signified approval of the official reticence?
That which stockholders ought to bring about, and right speedily too, either on private initiative or by induced legislation, is the introduction of shareholders' audit or of general checkup committees. The practice of such independent auditing, made at the expense of the corporation but under the supervision of shareholders entirely independent of the management, is necessary under the British Companies Acts; as also in Germany. Certified public accountants report to a stockholders' committee annually, and they are held to a strict obligation at law. Whether or not, for example, a given item should be charged to capital or income account is a matter of dictation by the management in private corporations in the United States. But in order to do thus and so in England, if it were a debatable matter, it would be at once referred for decision to such an independent executive committee of the shareholders. The object, really, would be to accomplish in the field of finance something akin to that which is expected to be brought about in the field of labor by the introduction of company unions. The principle of representation for employees by means of works councils has been widely adopted throughout the country since the war. The purpose is to establish a medium of communication between the employees collectively and the company. By and large, the relations have been highly satisfactory, within certain limits; although it is apparent that such representation does not conform to the full ideal of the trade-union movement. Here, in this other field of ownership, it is equally important that the management should be tied in, so to speak, with an appreciably articulate representative body of the owners. That plans are already under way for experimentation in this direction affords evidence that a present source of disquiet and abuse may possibly be dried up by resorting to some such private initiative.
Yet another activity of shareholders in the nature of a check-up, revision, or supervision, deserves consideration. This has to do with current valuations as carried on the balance sheets. As at present conducted, such appraisals, whether in prospectuses or in annual reports, are invariably made up, not by experts of independent status, but by those whose prospects and emoluments are directly dependent upon the existing management. It is inevitable under such circumstances that these valuations should be biased by the wish to please. Quite irrespective of artificial stimulation or suggestion, the impulse nine times out of ten is toward overstatement. We have had too many examples even of downright deception in this regard. Shareholders have a right, not only to an independent appraisal by engineers at the time of issuance of a prospectus, but also to a current check by independent engineers from time to time. Nor would the expense be an objection, since the cost should be chargeable to the operating expenses of the corporation. Some of these matters, too, are quite differently handled under the British Companies Acts. There is perhaps something for us in the United States to learn in this connection.
State legislation for stimulation or enforcement of publicity holds out little promise for the future. Widely differing standards between the commonwealths, already forcibly exemplified in respect to incorporation practice, bring insuperable difficulties. The pressure of local opinion in the case of important concerns can only be overcome by exercise of these powers from a distance. Heartbreaking experience in enforcement of factory legislation by local authority is of record. 'If I were to attempt to execute the present law [as to child labor], this village would be too hot to hold me,' was the way one of the Connecticut school visitors put it at the time. The leading instance of attempts by state legislation to invigorate business practice is afforded by the numerous blue-sky laws enacted upon the initiative of the State of Kansas in 1911. But these local commissions, serviceable enough when dealing with downright fraudulent issue of securities by mining, real-estate, or other adventurers, almost inevitably become apologetic or complaisant when confronted by serious situations in important close-by going concerns. 'They are directed, moreover, against the sale of gold bricks, whereas our present concern is with the distribution of lemons,' is the way one observer puts it. The Michigan blue-sky law is a case in point. The so-called Securities Commission, upon the promotion of Dodge Brothers, Inc., in 1925, promptly rendered a forceful decision, prohibiting the sale of the capital stocks in commerce within the state. Obviously, however, over business clone from New York it had no jurisdiction. Furthermore, apparently in accordance with the terms of the statute, this convincing and able statement, which if published would have clarified the whole situation, was closed to public view—at all events I was requested to refrain from giving it public circulation. The decision merely, and not the underlying facts, obviously exercised almost no outside influence whatsoever. Such experience renders one skeptical of all local endeavor in this direction, whether like the admirable Business Companies Act introduced under Roosevelt's leadership in New York in 1900, or like the numberless blue-sky laws of one kind or another now upon the statute books. They are all good enough in their way for downright fraudulent concerns. But by way of stiffening up conditions along accounting lines in the case of ordinary industrial or commercial businesses they will always be practically negligible.
Comprehensive and ambitious proposals for Federal incorporation or Federal license to engage in interstate commerce need hardly be considered in this particular connection of adequate publicity. Whether or not, on the ground of corporate shortcomings or abuses, such a proposal should be advocated need not concern us for the moment. The far-reaching proposal of President Taft, by special message to Congress on January 7, 1910, recommending Federal incorporation, turned out to be politically impractical on the one hand and economically inexpedient on the other. The immediate impulse was the decisive dissolution decrees of the Supreme Court of the United States in the Standard Oil, and the American Tobacco Company decisions. But the foregoing developments led forward logically to the enactment of the Federal Trade Commission Law of 1914, which is still in full force and effect, as an amendment of the Sherman Antitrust Law. This statute, which is usually thought of in connection with unfair trade practices and the regulation of monopoly, contains in Section 6 a positive delegation of authority to this body which is entirely adequate to the performance of the service so greatly needed at the present time. The Federal Trade Commission, had it chosen to exercise these powers, might since 1914 have gathered and compiled information—to paraphrase the statute—concerning the organization, business, and management of any large corporation engaged in commerce, except banks and common carriers. Furthermore, it might require by general or special orders such corporations to file with the Commission both annual and special reports in such form as the Commission might prescribe, such reports to be rendered under oath. The record of debate upon the subject makes it clear that Congress intended this work to constitute one of its chief activities.
What is the explanation for the neglect of this section of the existing law? It is partly, perhaps, because the Commissioners have been legalistically rather than economically minded, preferring to institute proceedings rather than to set constructive inquiries and practices on foot. Another reason is that since the war, with its concomitant overdevelopment of Federal power, a natural reaction against so-called paternalism supervened. A third is that this body is still in its incubatory stage of development. Even with the best of intent, it must of necessity, as did the Interstate Commerce Commission for years, light from point to point before the courts for affirmation of its powers under the law. A prime controversy now at issue in the courts is an outcome of the rise of prices and the attendant price fixing during and since the var. The Commission, by direction of the President, had instituted special inquiries into the cost of steel production, largely for the use of the War Industries Board. Such data turned out to be most valuable also for the Fuel Administration and for the other price-fixing or Federal purchasing agencies. Congress even made special appropriations for the collection of such material. In 1920, the peak year of inflation, the Federal Trade Commission called upon the steel companies to furnish balance sheets and income statements quarterly, along with other supply and demand data every month. The account of this endeavor will be found in its report on 'War Time Profits and Costs of the Steel Industry.' Certain of the steel and coal companies refused to accede to these orders, on the ground that they were engaged in production and not in interstate commerce, and that they were therefore not subject to the jurisdiction of the United States in this respect. Two decisions of the Federal courts have already held that the Commission had no such authority. The matter has been twice argued before the Supreme Court, indicative of considerable doubt upon the point. The chances might indeed be against the affirmation of this Federal authority, were it not that the final outcome in most of the trust and railroad litigation has heretofore in last resort been in favor of the plenary authority of the United States.
Here, then, we have plainly indicated the most obvious, the simplest, the most effective remedy of all. It lies inert in the hollow of the executive hand. No legislation is necessary. There is nothing revolutionary about it—nothing paternalistic, to use a dreadful word, unless that means the exercise by the Great White Father of his lawful prerogative on behalf of some millions of our citizenry who are in need of help. Nor will it pauperize—another ill-omened word—if the President declare it to be the policy of the administration to carry out this law. Quite the reverse! Nothing will more surely conduce to popular thrift than to throw all possible safeguards about the investments of the common people. Let the word go forth that the Federal Trade Commission is henceforward to address itself vigorously to the matter of adequate and intelligent corporate publicity, and, with the helpful agencies already at work, the thing is as good as done.